Leap in unemployment rate raises question of Labour own goal

The UK’s jobless rate has risen by more than expected, raising questions over whether the new government’s early warnings on the state of the economy have backfired.

Official figures from the Office for National Statistics (ONS) showed the unemployment rate at 4.3% over the three months to September.

That was higher than the 4.1% figure expected by economists and up on the 4% reported a month earlier.

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The data also showed that average regular earnings growth had fallen to its lowest level since April-June 2002, easing to 4.8% from 4.9%, though it continued to outstrip the pace of inflation.

Wider figures showed a fall, of 5,000, in the numbers in payrolled employment during the month of September.

Commentators on the economy suggested that the jobless rate figure could be a blip – a consequence of continuing poor engagement with the ONS Labour Force Survey which collects the information.

They also said that the earnings growth rate – a key concern of the Bank of England’s in the inflation battle – was propped up only by public sector pay rises, suggesting that private sector awards were continuing to ease.

However, others said there could have been an influence from the new government’s claims, since late July, of a dire economic inheritance including a £22bn black hole in the public finances.

Both Prime Minister Sir Keir Starmer and his chancellor, Rachel Reeves, stated widely during the election campaign their priority was boosting economic growth through a new partnership with business.

But they warned within weeks of taking office of “tough” decisions ahead, while taking some immediate action including cutting the universal winter fuel payment.

A budget was slated for 30 October.

That first major fiscal event for Labour in 14 years, delivered three months after the gloomy messages first emanated from Downing Street, prompted a business backlash as it put employers firmly on the hook for part of a £40bn additional tax take.

The private sector has since warned that the measures, which include hikes to national insurance contributions by employers, will hit investment, hiring and pay awards, leaving all the talk of partnership with the government in serious doubt.

Danni Hewson, AJ Bell’s head of financial analysis, said of the ONS data: “This latest set of jobs data puts in black and white what businesses and workers have been feeling… Over the last few weeks, businesses have been warning that the increase in national insurance coupled with another chunky hike in the national living wage could result in job cuts.

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“Even before the budget, uncertainty about what taxes might rise eroded confidence and many employers pushed back investment decisions or halted hiring plans until they could assess the road ahead.”

Isaac Stell, investment manager at Wealth Club, said: “A pickup in the unemployment rate may start to ring alarm bells in the halls of Westminster as the rate for September exceeded expectations by some margin.

“This increase serves as a warning sign to the government following on from the budget where businesses saw a large increase in the level of national insurance contributions they will have to pay.

“If these additional costs restrict hiring and cause jobs to be lost, its so-called growth agenda will be further scrutinised,” he wrote.

Work and Pensions Secretary Liz Kendall said of the pay data: “While it’s encouraging to see real pay growth this month, more needs to be done to improve living standards too.

“So, from April next year, over three million of the lowest-paid workers will benefit from our increase to the national living wage.”